This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, click the "Reprints" link at the bottom of any article.

April 26, 2012

Why RIA Firms Should Hire the Young, Pt. 1: Breakaway Brokers

There’s no question that the trend of bank and brokerage firm advisors transitioning to independence continues to ramp up: A whopping 76% of advisors at major financial firms recently told Schwab (in the February 2012 study Advisors Turning Independent) that they expect more advisors to leave their firms to start or join RIAs in the coming years.

What’s more, it’s the youngest advisors at those firms who are most likely to make the transition. In that same study, a sizeable majority of advisors under 40 years old (65%) say they find the idea of becoming an RIA appealing, compared to 43% of advisors aged 40 and older.

These developments give independent advisors significant opportunities to expand their businesses and ensure their firms’ longevity. In the past, the perceived safety and security of a wirehouse career made it next to impossible for RIAs to recruit high-quality, experienced advisors from that pool. Of course, the financial crisis and Wall Street fallout played a role in changing all that—and young advisors today are increasingly viewing the independent model as the better way to serve clients and build their careers.

Why Hire Young Breakaways?

RIAs who hire young ex-wirehouse advisors often do so for succession planning reasons. After all, younger advisors are more likely to invest themselves in firms for long periods—thereby helping ensuring much needed consistency and continuity for an RIA’s clients and staff during the decades to come.

That said, there are other reasons why RIAs should considering hiring younger advisors looking to exit their firms. For example:

They’re cost effective.With a young advisor who has a small book of business but significant future potential, an independent advisor can easily structure a compensation package that rewards the advisor for the future contributions that he or she brings to the RIA practice. By contrast, hiring an established ‘star’ usually requires an RIA to pay a premium based largely on the advisor’s past results—a strategy that can backfire badly if the advisor fails to live up to lofty expectations. As a result, young hires represent good upside potential at a relatively low cost and with less risk to the firm’s financial health.

They’re easy to integrate into an RIA practice.Young advisors’ loyalty to their employers is low, as the events of the past few years have caused many to question their firm’s stability and the validity of their methods. These advisors recognize the value of the RIA culture, and how it allows them to implement wealth management solutions in more flexible, creative and client-centric ways. As a result, onboarding these advisors into an RIA practice and getting them to contribute can be a much easier, faster process.

They can help retain family assets.A key intergenerational wealth issue facing many RIAs today is how to retain family assets when their older clients transfer their wealth to children and grandchildren who may not know or feel a connection with their parents’ advisors. Hiring a young advisor can give an RIA firm a strong connection point to that second or third generation of wealth ownership that is going to be the beneficiary once today’s owners of that wealth leave the money behind. By building trusted relationships with those heirs, young advisors can serve as an important bridge between RIAs’ existing older clients and those clients’ sons and daughters who stand to inherit family assets.

They can connect with emerging wealth niches.Younger advisors also can be key players in identifying and attracting important client niches where new and emerging wealth is being generated—such as the young tech millionaires and other segments of the affluent population whose members are largely in their 20s and 30s. These investors are more inclined to work with younger financial professionals who look and act similarly to themselves in terms of their life experiences, familiarity with and use of new technologies, social pursuits and overall worldview.

They are tech-savvy.Many RIAs would like to make better use of technology, both internally to maximize efficiencies and externally to reach out to clients and prospects more proactively (through CRM, social networking and other applications). Young advisors’ familiarity and comfort with established and emerging technologies can benefit independent firms trying to integrate these tools into their business processes.

The upshot: RIAs looking to retain assets, capture new business or implement business succession plans should consider how younger ex-wirehouse brokers might help them achieve those goals.

In my next post in this three part series, I’ll discuss how to successfully recruit top younger advisors who are looking to make the switch to the RIA model.

-----------

For informational purposes only.

Experiences reflected are not a guarantee of future performance or success and may not be representative of your experience. (#0312-2000)

Charles Schwab & Co., Inc.(Schwab) is not affiliated with the content on this website and has no control over how it uses the information you share. Content posted on this website should not be considered as a recommendation, endorsement, or solicitation of any kind by Schwab. Any opinions or statements by third parties on this page are their own and may not be representative of the experience of others or indicative of future performance or success. Schwab Advisor Services™ serves independent investment advisors and includes the custody, trading and support services of Schwab. Independent investment advisors are not owned, affiliated with or supervised by Schwab.

Sign up now—it's Free!

Sponsor Showcase

ThinkAdvisor's TechCenter is an educational resource designed to give you a competitive edge by keeping you abreast of new tech innovations and need-to-know information that can be applied to your business.

Featured Video

At Prudential Advisors, we're dedicated to helping all our clients get on the path to achieve their goals."Prudential Advisors" is a brand name of the Prudential Life Insurance Company of America and its subsidiaries